Price hike, cost-efficiency mantra for FMCG companies: 2011 Review

Despite the challenges, the Indian FMCG market is expected to grow at rate of 10% over the next 10 years and reach a size of Rs4,13,000 crore ($92 billion) by 2015 and Rs6,65,000 crore ($148 billion) by 2020, according to a report by industry body FICCI

New Delhi: In a year marked by high inflation and skyrocketing commodity prices, ‘price hike’ was the name of the game for the Indian fast-moving consumer goods (FMCG) sector in 2011, even as they consolidated businesses acquired in the past, reports PTI.
Unlike the previous year, mergers and acquisitions took a backseat and cost-efficiency was a focus area to sustain strong volume growth this year.

Companies took greater interest in penetrating into rural areas and boosting the consumer sentiment, while ‘premiumisation’ was a key strategy employed during the year to tap the growing middle-class segment.

Amid the tough environment, Coca-Cola committed a $2 billion investment in the country over the next five years, primarily to enhance its manufacturing capacities. This is almost the same amount it has invested in India since its entry in 1993.

“The greatest challenge for FMCG companies this year was managing inflation and the high volatility of currency and other commodities. Companies have managed this through a combination of effective cost management and price increases,” Dabur India chief executive officer Sunil Duggal told PTI.

During the year most leading FMCG companies, including Hindustan Unilever (HUL), Procter & Gamble, Reckitt Benckiser, Godrej Consumer Products (GCPL), Marico and Dabur, hiked prices of their products by as much as 10%.

As a result, major soap brands, including HUL’s Lux, Lifebuoy and Pears and Godrej’s Cinthol and Godrej No. 1, saw an increase in their prices. Companies said soaps were the most impacted category because of high palm oil prices, a key ingredient in the product.

Despite the price hikes, experts said the sector was able to sustain a volume growth of 9%-10%, thanks to the focus on affordable and small pack sizes. In addition, companies also talked about widening their premium products portfolio to tap the high-end of the segment.

“Volumes remained strong despite the challenges. Input costs were stiff throughout the year and most players came up with low price points, affordable range and lower SKUs by reducing the grammage (weight) with the semi-urban and rural population in mind,” India Infoline Research analyst Vanmala said.

Despite the challenges, according to a report by industry body FICCI, the Indian FMCG market is expected to grow at rate of 10% over the next 10 years and reach a size of Rs4,13,000 crore ($92 billion) by 2015 and Rs6,65,000 crore ($148 billion) by 2020.

It is presently estimated to be worth about Rs2,60,000 crore ($58 billion), contributing 4.8% to the GDP (gross domestic product).

“We believe in the long-term opportunities in India. We are excited about the opportunities and we are committed on the $2 billion investment plans for the next five years,” Coca-Cola India president and CEO Atul Singh said.

Given the current uncertainty, FMCG companies are likely to take cautious steps in the New Year as they try to maintain the growth momentum in the days ahead.

“Further headwinds are coming in the next year in the form of further volatility in currency, inflation above acceptable levels and elections in key states. These will determine the state of the economy and we look up to the new year with cautious optimism,” Dabur’s Mr Duggal said.

User

Corporates may find it difficult to repay loans: RBI

“The outlook of the firms show signs of weakness which can be attributed to rise in input prices, interest rates, slackening demand and some infrastructural constraints. Servicing of loans by them, therefore, may come under stress,” said the RBI’s Financial Stability Report

Mumbai: The Reserve Bank of India (RBI) on Thursday said Indian companies may find it difficult to repay loans as rising input cost is putting pressure on their profit margins.

“The outlook of the firms show signs of weakness which can be attributed to rise in input prices, interest rates, slackening demand and some infrastructural constraints.

Servicing of loans by them, therefore, may come under stress,” said the RBI’s Financial Stability Report (FSR).

It said the profit margin of the corporate sector has dipped, which indicates its reduced pricing power in the wake of rising raw material and input costs.

“The rising share of interest cost in sales as well as gross profits so far, implies that the impact of monetary tightening on the margins of corporates are now becoming visible,” the RBI said.

The RBI has hiked rates 13 times since March 2010 and industry believes the rising borrowing cost is putting pressure on margins as production is getting impacted.

It said restructured and impaired assets increased in telecom and power sectors. “The fact that incremental credit to these sectors was also high—higher than the aggregate growth in banking sector credit—called for careful monitoring of asset quality in these segments,” RBI said.

The report further said that banks’ asset quality has come under pressure due to the adverse impact of inflation on growth and various other factors.

It said that higher interest expenses and higher provisioning requirements put some pressure on banks’ profitability even as efficiency ratios continued to improve.

“Going forward, earnings may be further stressed due to the impact of high deposit rates, potential slowdown in credit growth and deterioration in asset quality,” it said.

Further, India’s external sector faces risks due to decreasing growth in world trade volumes and weakening global demand.

“Going forward, exports may moderate further if the slowdown in advanced economies persists,” the RBI said.

User

RBI may lower GDP projection for FY11-12: RBI governor

RBI governor D Subbarao said that the targeted growth may not be achieved on account of several factors such as high inflation and the depreciating rupee

Vijayawada: The Reserve Bank of India (RBI) on Thursday said the Indian economy is likely to grow below its projection of 7.6% this fiscal, and is likely to revise downward the forecast in its policy review next month, reports PTI.

RBI governor D Subbarao said while addressing an event here that the targeted growth may not be achieved on account of several factors such as high inflation and the depreciating rupee.

The central bank is likely to revise downwards its gross domestic product (GDP) projection in its 3rd quarter review of monetary policy on 24th January, during which it will come out with revised forecast for year-end inflation.

In October, it had cut the GDP growth forecast for 2011-12 to 7.6%, from 8%.

Earlier this month, the government lowered its full-year growth forecast to between 7.25% and 7.75%, down from 9% projected in February.

Mr Subbarao said the macro-economic situation is a cause of concern, as growth is declining, inflation is stubbornly high and rupee is weakening.

After 13 interest rates hikes since March 2010, the RBI had paused the rate hike cycle in its policy review on 16th December. The overall inflation was still at an elevated level of 9.11% in November.

There are risks to inflation, Mr Subbarao said, adding that high oil prices and the sudden depreciation in rupee pose challenges for the economy.

The rupee has depreciated 18% against the US dollar so far this year. It is hovering at 52.65%.

Mr Subbarao said market forces would continue to determine the rupee level and RBI will intervene only if there is a sharp volatility. He said the course of exchange rate movement could change if the European markets improve.

The RBI chief said administrative measures taken by RBI would curb undue speculation and ensure that interest of the genuine customers in forex markets are not affected.

RBI had last week taken measures to support the rupee, including putting curbs on forward trading to check speculation.

India’s economy grew at a slowest pace in over two years at 6.9% in the July-September quarter. Further, factory output contracted 5.1% in October.

Mr Subbarao said he expects inflation to be below 7% by the March end, but did not specify as to when the benchmark interest rates would be reduced.

“I cannot say when and how the interest rates will come down. Challenges before the RBI is to balance growth and inflation,” he said.

Mr Subbarao said that in addition to the constraints in food supply and rising prices, the international oil rates also flared up the inflation levels.

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)